For maximising performance of tax collection: FBR seeks financial autonomy, placement of unified integrity cell

ISLAMABAD: The FBR officers have sought financial autonomy and placement of unified integrity cell for both service groups Inland Revenue Service (IRS) and Customs for maximising the performance of tax collection machinery in Pakistan.

They asked the government to amend the FBR Act 2007 in line with best international practices to improve resource allocation and utilisation instead of getting permission from Ministry of Finance on each and every penny.

At a time when the PTI-led government is working on restructuring plan of tax machinery, the FBR’s Inland Revenue Service (IRS) officers asked for granting financial autonomy to the FBR. They proposed that the nature of financial autonomy of FBR level should be different from other GOP entities. As per new rules of business it can be catered to by inserting one line budget that can be allocated to FBR from Ministry of Finance.

This should also be accompanied with authority to FBR to appropriate/re-appropriate funds along with departmentalised accounting systems in accordance with its own priorities and needs as in vogue in other government department and authorities.

The system would enhance FBRs financial management/efficiency for supporting revenue operations effectively. Tax collection cost may be increased from 0.65% to 1.5% as also recommended by the World Bank. In the light of the aforementioned it is proposed that limited autonomy should be granted to FBR by amending Section 11 of The FBR Act, 2007, in line with the International Best Practices, in order to improve resource allocation/utilisation along with rules of business to place budget of FBR through MoF (Revenue Division).

The FBR Act 2007 envisages significant financial autonomy for FBR which was never granted in practice. The required financial autonomy can be granted through the following amendment in Section 11 of FBR Act:

Budget and accounts of the Board.- (1) The Board shall, in respect of each financial year, in accordance with the prescribed financial procedure, prepare its accounts of the receipts and payments and budget estimates and submit the same to the Finance Division for further process.

(2) Once the budget has been approved, the Board shall have the full powers to incur expenditure, or re-appropriate funds, subject to rules prescribed under this act.

(3) The Board shall maintain its accounts in accordance with the procedure prescribed by the Controller General of Accounts and such accounts shall be audited by the Auditor-General of Pakistan.

(4) The Board shall provide an annual financial report to the Federal Government.

On integrity issue, the FBR officers ask for a unified integrity management system for Customs and IRS officers and officials should be in place in line with Arusha Declaration.

Placement of Integrity Management Cells at all RTOs, Collectorates and LTUs to provide complaints to a notified focal person in all field formations. Placement of legal prosecutors’ team in all filed formation for undertaking libel cases as per penal code to ensure that officers and officials are not blackmailed and ensure correct cases are processed.

The media campaign should be launched to promote the cross check balance in place by FBR, code of conduct to be devised at FBR for all public officials and a feedback system may be established at Tax Assan Centers.

The strategic rethink that took place in 2001 first set Inland Revenue down the path of an approach to tax administration based on the principles of responsive regulation.

In line with this approach, Inland Revenue introduced its integrity management compliance model. Inland Revenue Service revised some of its internal policies and a procedure has been devised and placed in HRM wing as an IMPU (Integrity Management Performance Unit) in order to provide taxpayers a forum where the complaints against any corrupt practices can be placed. HRM Wing of FBR recognises this important aspect of integrity management of the workforce and consulted World best policies for the said purpose. FBR officers are required to file asset declaration on yearly basis to secure performance allowance continuity. There is also regular internal audit conducted of all cases finalised by the officers.

However, more work is needed to incorporate integrity measures and manage taxpayer perceptions of the integrity of the tax system as an objective that should be pursued in its own right.

It is perceived that the income tax system had failed to generate enough revenue due to the presence of rampant evasion and corruption, high level of taxpayer compliance costs and the frustration resulting from harassment by tax officials, arbitrary nature of assessments and time consuming appeals processes. These areas require attention at policy level to reduce the perception of harassment from the taxpayers.

No less harm is done to integrity of tax system by corrupt practices than by lack of professionalism by all the parties involved: tax collector, tax advisor and tax payer. This may be reflected in inordinate delays in official work by tax collector, the delaying tactics by taxpayers beyond reasonable limit and the tax avoidance schemes designed by tax advisor as well as the confusion created between the tax collector and tax payer by the tax advisor.

To promote professional integrity on all sides, it is proposed that the procedure manuals may be developed for all the internal and external processes.

In addition to laying out the procedural steps, the manual shall lay out the expectation of compliance on each side, e.g., the period of time the department shall take for a certain request by the taxpayer or the period of time in which the taxpayer may reasonably be expected to fulfil certain requirements.

These bench marks shall be used for review of procedures and to improve them and shall have no bearing on the legally provided time frame for various actions by taxpayer and department.

These measures shall clearly lay out the procedures and the mutually shared expectations at various steps on all sides.